Units of Measurement and the Inverse Hyperbolic Sine Transformation

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The inverse hyperbolic sine (IHS) transformation is frequently applied in econometric studies to transform right-skewed variables that include zero or negative values. We confirm a previous study that shows that regression results can largely depend on the units of measurement of IHS-transformed variables. Hence, arbitrary choices regarding the units of measurement for these variables can have a considerable effect on recommendations for policies or business decisions. In order to address this problem, we suggest a procedure for choosing units of measurement for IHS-transformed variables. A Monte Carlo simulation assesses this procedure under various scenarios and a replication of the study by Bellemare and Wichman (2019) illustrates the relevance and applicability of our suggested procedure.
Original languageEnglish
PublisherDepartment of Food and Resource Economics, University of Copenhagen
Number of pages20
Publication statusPublished - 2019
SeriesIFRO Working Paper
Number2019/10

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